Gold fuels big banks’ bumper profits as oil bonanza fades

FILE PHOTO: Gold bars are displayed during a photo opportunity at the Ginza Tanaka store in Tokyo
FILE PHOTO: Gold bars are displayed during a photo opportunity at the Ginza Tanaka store in Tokyo September 7, 2009. REUTERS/Yuriko Nakao/File Photo

November 9, 2020

By Peter Hobson

LONDON (Reuters) – Lower income from oil reduced commodity-related revenues at the world’s ten biggest investment banks in the third quarter, but booming profits from precious metals means they are still set for a bumper year, consultants McKinsey CIB Insights said on Monday.

Big banks have almost doubled their earnings this year from trading, selling derivatives and other activities in the commodities sector thanks to price volatility, supply disruption and a boom in trading since the coronavirus outbreak.

Massive swings in the price of oil <LCOc1><CLc1>, the biggest market, drove profits earlier in the year, but gold <XAU=> has taken over as the biggest earner as crude prices stabilised.

A rush of interest in gold from investors and a fracturing of the market after the virus stuck created lucrative opportunities for banks.

The ten largest had net revenues of $1.5 billion over the July-September quarter, McKinsey CIB Insights said, down from $2.4 billion over April-June but up from $1.1 billion in the third quarter of 2019.

For the first nine months of the year, their revenues were $5.6 billion, up from $3.2 billion in 2019, McKinsey said.

(GRAPHIC: Commodities bonanza – https://fingfx.thomsonreuters.com/gfx/ce/xklvybeqqpg/COMMODITIES%20BONANZA%20Q3.JPG)

Earnings from oil fell to $416 million in the third quarter from $1.1 billion in the second, but were still up from $341 million in the third quarter of 2019.

Profits from precious metals, meanwhile, rose to $577 million from $457 million in the second quarter and $209 million in the third quarter of 2019.

Revenues from power and gas and agricultural commodities fell in the third quarter and income from industrial metals was roughly stable.

The ten banks McKinsey CIB Insights tracks are Bank of America <BAC.N>, Barclays <BARC.L>, BNP Paribas <BNPP.PA>, Citigroup <C.N>, Credit Suisse <CSGN.S>, Deutsche Bank <DBKGn.DE>, Goldman Sachs <GS.N>, HSBC <HSBA.L>, JPMorgan <JPM.N>, and Morgan Stanley <MS.N>.

(Reporting by Peter Hobson; Editing by Marguerita Choy)